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Sensex Slips Further in Red; Divi's Lab Tanks 8%
Wed, 27 Sep 01:30 pm | Prasheel Vartak, TM Team

After opening the day flat, share markets in India witnessed volatile trading activity and are currently trading in red. Sectoral indices are trading on a mixed note with stocks in the IT sector and stocks in the consumer durables sector trading in green, while stocks in the pharma sector and stocks in the metal sector are leading the losses.

The BSE Sensex is trading lower by 265 points (down 0.8%), and the NSE Nifty is trading down by 80 points (down 0.8%). Meanwhile, the BSE Mid Cap index is trading down by 0.8%, while the BSE Small Cap index is trading down by 0.7%. The rupee is trading at 65.79 to the US$.

In news from stocks in the pharma sector. Divi's Lab share price is in focus today after the company said it received six observations for its unit 2 in Visakhapatnam, Andhra Pradesh.

US Food and Drug Administration (USFDA) inspected the plant during September 11-19, and issued six observations including failure in testing individual batches and inadequate cleaning instructions.

As per USFDA, observations are made in Form 483 when investigators feel that conditions or practices in the facility are such that products may become adulterated or render injuries to health.

The US regulator pointed out that the company has failed to test individual batches of final API (active pharmaceutical ingredients) with conformity with all appropriate specifications and the lab failures have not been thoroughly investigated.

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Among other observations, Divis failed to validate the manufacturing cleaning length of time and there are inadequate cleaning instructions for major equipment. Batch records are not always recorded, according to the regulator.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

The list of pharma sector woes is long. So, is there light at the end of the tunnel? Girish Shetty, our research analyst thinks there is.

As per him, it doesn't make sense to paint all pharma stocks with the same brush. The leaders of the industry will certainly survive this phase. There are interesting, niche pharma stocks that are worth your attention.

Facing pricing pressures in the domestic and export markets, currency fluctuations, as well as manufacturing issues related to their plant, there is a transformation happening in the overall sector as to how business is done and will be done in the future.

USFDA sweetener for Indian Pharma

In recent times, pharma companies were bogged down by mounting pressure from US Food and Drug Administration (USFDA) to adhere to quality standards at their manufacturing plants. In the past three years, the USFDA raised numerous regulatory concerns resulting in import bans and suspension of new drug approvals from facilities of Indian pharma companies.

But what has come as a breather is a sharp pick-up in new drug approvals in 2017. During the period January-July 2017, 129 approvals for generic drugs were made. This is 45% higher from 89 approvals made in the corresponding period last year.

As per the Indian Pharmaceutical Alliance, the pace of drug approvals has gained momentum after they complained to FDA about delays last year. Approvals for drugs have also picked up after USFDA concerns at some of the manufacturing units were addressed.

At the time of writing, Divi's Lab share price was trading down by 7.7%.

Moving on to news from stocks in the telecom sector. Idea Cellular share price is in focus today. According to a leading financial daily, the merger of Vodafone India and Idea Cellular is on track to be completed in 2018.

According to the reports, the merger is on course and is in the approval stage. The merger process needs to go through various stages including approvals from the Competition Commission of India, SEBI, NCLT and the telecom department.

Earlier this year, Vodafone India and Idea Cellular had agreed to merge their operations to create the country's largest telecom operator worth of more than US$ 23 billion with a 35% market share.

The combined entity of Vodafone India and Idea Cellular, which are currently India's number 2 and 3, respectively, would dislodge Bharti Airtel to counter the fierce price war in the world's second-largest telecom market.

A merger of this scale has potential to change the industry order. The combined entity would have 43% revenue share in the market by FY19 against 33% of Bharti Airtel and 13% for Reliance Jio.

The entry of Reliance Jio and the fierce tariff war it has triggered have set off brisk activity in the industry for fundraising and consolidation, as the incumbents look for ways and means to fend off the competition.

Reliance Jio's disruptive pricing, seemingly hasn't left other market players with much of a choice but to accelerate consolidation moves to sustain the pricing wars.

Idea Cellular share price was trading down by 0.7% in the afternoon session.

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Mar 21, 2018 02:17 PM